ISM non-manufacturing data shows growth in May

Despite a backdrop of negative jobs reports, sluggish home sales, and cautious consumer spending, the non-manufacturing sector remains in decent shape based on the results of the Institute for Supply Management’s (ISM) Non-Manufacturing Report on Business, which showed growth for the 18th consecutive month in May.

The ISM’s index for measuring the sector’s overall health—known as the NMI—was 54.6 in May, 1.8 percentage points higher than April’s 52.8. A reading above 50 represents growth.

The NMI’s total reading is largely based on four core metrics. In May, three of the four were ahead of April’s levels, with Business Activity/Production down 0.1 percent at 53.6, New Orders up 4.1 percent at 56.8, and Employment up 2.1 percent to 54.0.

“I was pleasantly surprised when I saw the numbers come in, especially with the New Orders index” said Tony Nieves, chair of the ISM’s Non-Manufacturing Business Survey Committee, in an interview. “This report came in better than expectations, especially on the heels of the ISM manufacturing report last week [which declined]. What we are seeing here is that non-manufacturing is such an eclectic sector and even with retail off the strength of the rest of the sector pulled it along. And the employment picture is looking up again, too.”

And with the NMI over 50, May continues a sustained stretch of continuous growth at a slow and incremental pace.

With summer quickly approaching, Nieves said it will be interesting to see how the data trends out in the coming months, which tend to wane somewhat due to the seasonal components of which its data is based on.

When asked what the drivers were for new order growth in May, Nieves explained that fuel was not a factor, as prices were still on the rise prior to when this data was collected. But next month, declining fuel prices could be reflected in the ISM data. Prices were down 0.5 percent to 70.1 in May.

Going forward, Nieves said it is realistic to expect the NMI to be in the mid-50s over the next few months, possibly hitting the high 50s, with a chance of getting into the 60s closer to the fall.

On the employment side, Nieves said that employment in the non-manufacturing sector is seasonally-adjusted, adding that this data takes into account recent trends and timing of the year.

“For employment, we tend to see some slippage in the summer months as it relates to different indices,” said Nieves. “And some sectors like textiles shut down in the summer which factors into these numbers.”

While many economists lately are pointing to a so-called “soft patch” in the economy at the moment, Nieves said non-manufacturing is seeing more of a steady flow in growth and is not experiencing the spikes seen in other sectors like manufacturing, which began this year on a torrid growth path.

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